The U.S. Economic Mojo Problem

Economists and policymakers are worried about not only the pace of the recovery but also our long-run prospects for economic growth. I’m a technology optimist much like MIT’s Erik Brynjolfsson and Andrew McAfee, who believe we have only just begun to witness the full benefits of the information technology revolution.

But research that I conducted with Ian Hathaway and that was published by the Brookings Institution last week brought my optimism down a notch.

New firms and entrepreneurs are critical for bringing products and services–which are often disruptive–to market. Yet Mr. Hathaway and I found that as a share of all firms, firms that are one year old or newer have been declining for the three decades ending in 2011.

Even more surprising, the national decline in the firm formation rate is mirrored in declines in every one of the 50 states and all but a handful of the nation’s 366 metropolitan areas.

We are working on possible explanations for these trends, and I hope to report back in several weeks–at www.brookings.edu and on Think Tank.

Robert Litan is a nonresident senior fellow at the Brookings Institution and the author of the forthcoming book “Trillion Dollar Economists.”

Think Tank is Capital Journal’s home for outside analysis from policy and political thinkers.

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